GBPJPY

GBPJPY Live Chart

GBPJPY traded lower during the European morning Tuesday after it hit resistance at 135.60 (R1). In my view, the short-term trend remains positive, but I see signs of exhaustion, which makes me believe that the today’s setback is likely to continue for a while.

I would expect the rate to challenge the 133.50 (S1) support hurdle soon, where a dip is possible to open the way for the 132.30 (S2) territory.

Our short-term oscillators support the notion. The RSI exited its above-70 zone and is now pointing down, while the MACD, although positive, has topped and fallen below its trigger line.

As for the broader trend, I believe that the break above the downside resistance line taken from the peak of 15th of July opens the door for further bullish extensions.

That’s another reason I would treat the recent pullback, or any further near-term extensions of it as a corrective phase.

The British pound tumbled after the UK CPI rate for October declined, missing expectations for an increase.

The rate fell to +0.9% yoy from +1.0% yoy previously, against the forecast for a rise to +1.1% yoy. Despite slowing inflation, we believe that this development is unlikely to lead to any material shift in the BoE’s neutral policy stance.

Instead, we view this more as a “bump in the road”, considering that sterling’s weakness will likely feed into the inflation prints of the following months. As a result, we maintain our cautiously positive near-term view towards GBP, and we believe that the currency could remain somewhat supported for a while, especially as investors await the Supreme Court’s decision on whether Parliament should vote on “Brexit” (expected early December).

This argument is enhanced by the fact that the rest of the UK data we get this week are forecast to show that the economy remained resilient following the referendum.

However, we would stay mindful on whether the pound could remain supported against the greenback, as the US currency may resume its “Trump rally” after this profit-taking period is over.

We believe that further pound strength may be more evident against currencies that took a hit following the US election outcome, like EUR and JPY.

Trading Recommendation

BoJ needs higher currency and it looks like a free fall for the pound but the problem is that GBP is depreciating too much. The currrent correction wont be enough, perhaps it might turn into a side ways trend.

Japan’s economy is dominate by:

Japanese manufacturing, Services are the dominant component of the economy – contributing to 71.4 percent of the GDP.

Japan’s agricultural economy is highly subsidised and protected. Agriculture made up only 1.2 percent of the nation’s GDP. Although its small contribution, agriculture is still a highly important component of Japan’s economy and society.